Were Hedge Funds Right About Sanmina Corporation (SANM)?

·7 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Sanmina Corporation (NASDAQ:SANM).

Sanmina Corporation (NASDAQ:SANM) was in 16 hedge funds' portfolios at the end of March. The all time high for this statistic is 23. SANM investors should pay attention to a decrease in activity from the world's largest hedge funds recently. There were 19 hedge funds in our database with SANM positions at the end of the fourth quarter. Our calculations also showed that SANM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Michael Gelband of ExodusPoint Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's take a look at the recent hedge fund action surrounding Sanmina Corporation (NASDAQ:SANM).

Do Hedge Funds Think SANM Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in SANM a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is SANM A Good Stock To Buy?
Is SANM A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Matthew Stadelman, holds the number one position in Sanmina Corporation (NASDAQ:SANM). Diamond Hill Capital has a $47.6 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $27.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions encompass Renaissance Technologies, Chuck Royce's Royce & Associates and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Invenomic Capital Management allocated the biggest weight to Sanmina Corporation (NASDAQ:SANM), around 0.21% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to SANM.

Due to the fact that Sanmina Corporation (NASDAQ:SANM) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of funds that decided to sell off their entire stakes in the first quarter. At the top of the heap, Michael Gelband's ExodusPoint Capital said goodbye to the biggest position of the 750 funds followed by Insider Monkey, worth close to $1.1 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund cut about $0.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Sanmina Corporation (NASDAQ:SANM) but similarly valued. These stocks are Rush Enterprises, Inc. (NASDAQ:RUSHA), Harmony Gold Mining Co. (NYSE:HMY), Evertec Inc (NYSE:EVTC), The Cheesecake Factory Incorporated (NASDAQ:CAKE), Range Resources Corp. (NYSE:RRC), Allegheny Technologies Incorporated (NYSE:ATI), and SPX FLOW, Inc. (NASDAQ:FLOW). This group of stocks' market caps are similar to SANM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RUSHA,17,78465,0 HMY,8,93178,-2 EVTC,21,217187,-1 CAKE,18,172335,0 RRC,26,415439,1 ATI,20,294940,-7 FLOW,16,193826,4 Average,18,209339,-0.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $157 million in SANM's case. Range Resources Corp. (NYSE:RRC) is the most popular stock in this table. On the other hand Harmony Gold Mining Co. (NYSE:HMY) is the least popular one with only 8 bullish hedge fund positions. Sanmina Corporation (NASDAQ:SANM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SANM is 45.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately SANM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SANM investors were disappointed as the stock returned -11.1% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.

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